In this article, we explained investment trends in oil and gas, principal investment trends, trends by sectors, and the challenges.
Definition
Investment trends in oil and gas refer to the patterns and shifts in how capital is allocated within the oil and gas industry. These trends reflect changing market dynamics, technological advancements, and evolving geopolitical landscapes, influencing where companies choose to invest their resources.
Principal Investment Trends:
Selective Upstream Investment with a Focus on Short-Cycle Assets:
Near-term Demand: Despite long-term decarbonization goals, global oil and gas demand is still expected to grow in the near to medium term, particularly in emerging economies. This necessitates continued investment in upstream (exploration and production) to offset natural decline rates from existing fields. The IEA forecasts global oil demand to expand, albeit at a slower pace, and acknowledges that sustained investment in existing production is required.
Resilience and Returns: Investors are increasingly prioritizing projects with quick paybacks, lower breakeven costs, and robust returns, especially in an environment of volatile commodity prices. This favors short-cycle developments like U.S. shale plays, where production can be ramped up or down relatively quickly. However, the IEA notes that investment in unconventional plays (like shale) is expected to drop in 2025 due to lower oil prices and shifting sentiment.
National Oil Companies (NOCs) vs. International Oil Companies (IOCs): NOCs, particularly those in the Middle East, are often investing more heavily in traditional upstream projects to meet global demand and maintain their strategic importance. IOCs, facing greater pressure from shareholders and environmental regulations, are more cautious with traditional upstream spending and are increasingly shifting capital towards lower-carbon solutions.
Surge in Natural Gas and LNG Investments:
Transition Fuel: Natural gas is widely seen as a crucial “bridge fuel” in the energy transition, offering lower emissions compared to coal and providing flexibility to complement intermittent renewables.
LNG Expansion: Investment in Liquefied Natural Gas (LNG) facilities is on a “strong upward trajectory,” with significant capacity growth expected between 2026 and 2028, particularly in the U.S., Qatar, and Canada. This is driven by strong demand from Asia (as countries shift from coal to gas for power generation) and Europe (seeking to diversify away from Russian gas).
Gas Infrastructure: Investment is also going into gas-focused enterprises, processing, and distribution networks, including compressed natural gas (CNG) for transport and domestic use.
Growing Diversification into Low-Carbon Technologies (Energy Transition Investments):
Renewable Energy Integration: Oil and gas majors are significantly increasing their investments in renewable energy sources such as wind, solar, and hydropower. This includes direct ownership of
renewable projects and integration of renewables into their operations (e.g., powering remote facilities with microgrids).
Hydrogen (Green and Blue): There’s a strong focus on hydrogen production, particularly “green hydrogen” (from renewable-powered electrolysis) and “blue hydrogen” (from natural gas with carbon capture). Major oil companies like BP and Shell are investing in green hydrogen projects to decarbonize their refining and petrochemical operations. The low-carbon hydrogen market is poised for significant growth, with many projects in development.
Carbon Capture, Utilization, and Storage (CCUS): Investment in CCUS technologies is crucial for decarbonizing existing fossil fuel operations (blue hydrogen, refining, petrochemicals) and hard-to-abate industries. Companies are exploring projects to capture CO2 emissions from their facilities and either store them underground or utilize them in industrial processes.
Electrification of Operations: Investment in electrifying oil and gas operations (e.g., using electric drilling rigs, electrifying offshore platforms) is growing, driven by a desire to reduce emissions and improve energy efficiency.
Digital Transformation and Technological Advancement:
AI and Machine Learning: Significant investment is being channeled into Artificial Intelligence (AI) and Machine Learning (ML) for optimizing operations, predictive maintenance, enhanced seismic interpretation, well planning, and production efficiency. The global AI in oil and gas market is projected for substantial growth.
Industrial Internet of Things (IIoT) and Cloud Computing: Real-time data analytics, remote monitoring, and improved asset productivity are being driven by IIoT and cloud-based platforms. Cloud computing in the oil and gas market is experiencing robust growth.
Advanced Drilling and Imaging Technologies: Investments continue in technologies that improve extraction efficiency, precision, and safety, such as automated drilling rigs and advanced robotics.
Focus on ESG and Sustainability:
Investor Pressure: Financial institutions and investors are increasingly scrutinizing oil and gas companies’ environmental, social, and governance (ESG) performance. This pressure drives companies to reduce emissions, improve environmental stewardship, and report transparently on their sustainability efforts.
Green Financing: ESG-linked debt covenants and a growing base of environmentally conscious investors are influencing capital allocation, favoring companies with strong decarbonization strategies.
Circular Economy: Investment is also being directed towards circular economy initiatives, such as chemical recycling of plastic waste into new feedstocks for refineries.
The oil and gas industry is currently navigating a period of unprecedented transformation, driven by the global energy transition, geopolitical shifts, technological advancements, and evolving investor expectations. Consequently, investment trends in the sector are highly dynamic, reflecting both the enduring importance of hydrocarbons and the urgent need for decarbonization.
Overarching Investment Trends
Selective Upstream Investment with a Focus on Short-Cycle Assets:
Near-term Demand: Despite long-term decarbonization goals, global oil and gas demand is still expected to grow in the near to medium term, particularly in emerging economies. This necessitates continued investment in upstream (exploration and production) to offset natural decline rates from existing fields. The IEA forecasts global oil demand to expand, albeit at a slower pace, and acknowledges that sustained investment in existing production is required.
Resilience and Returns: Investors are increasingly prioritizing projects with quick paybacks, lower breakeven costs, and robust returns, especially in an environment of volatile commodity prices. This favors short-cycle developments like U.S. shale plays, where production can be ramped up or down relatively quickly. However, the IEA notes that investment in unconventional plays (like shale) is expected to drop in 2025 due to lower oil prices and shifting sentiment.
National Oil Companies (NOCs) vs. International Oil Companies (IOCs): NOCs, particularly those in the Middle East, are often investing more heavily in traditional upstream projects to meet global demand and maintain their strategic importance. IOCs, facing greater pressure from shareholders and environmental regulations, are more cautious with traditional upstream spending and are increasingly shifting capital towards lower-carbon solutions.
Surge in Natural Gas and LNG Investments:
Transition Fuel: Natural gas is widely seen as a crucial “bridge fuel” in the energy transition, offering lower emissions compared to coal and providing flexibility to complement intermittent renewables.
LNG Expansion: Investment in Liquefied Natural Gas (LNG) facilities is on a “strong upward trajectory,” with significant capacity growth expected between 2026 and 2028, particularly in the U.S., Qatar, and Canada. This is driven by strong demand from Asia (as countries shift from coal to gas for power generation) and Europe (seeking to diversify away from Russian gas).
Gas Infrastructure: Investment is also going into gas-focused enterprises, processing, and distribution networks, including compressed natural gas (CNG) for transport and domestic use.
Growing Diversification into Low-Carbon Technologies (Energy Transition Investments):
Renewable Energy Integration: Oil and gas majors are significantly increasing their investments in renewable energy sources such as wind, solar, and hydropower. This includes direct ownership of renewable projects and integration of renewables into their operations (e.g., powering remote facilities with microgrids).
Hydrogen (Green and Blue): There’s a strong focus on hydrogen production, particularly “green hydrogen” (from renewable-powered electrolysis) and “blue hydrogen” (from natural gas with carbon capture). Major oil companies like BP and Shell are investing in green hydrogen projects to decarbonize their refining and petrochemical operations. The low-carbon hydrogen market is poised for significant growth, with many projects in development.
Carbon Capture, Utilization, and Storage (CCUS): Investment in CCUS technologies is crucial for decarbonizing existing fossil fuel operations (blue hydrogen, refining, petrochemicals) and hard-to-abate industries. Companies are exploring projects to capture CO2 emissions from their facilities and either store them underground or utilize them in industrial processes.
Biofuels (SAF & HVO): There’s a significant expansion in the biofuels segment, particularly for Sustainable Aviation Fuel (SAF) and Hydrotreated Vegetable Oil (HVO), which are expected to account for nearly 90% of future biofuel output. Many new biofuel projects have been announced globally.
Electrification of Operations: Investment in electrifying oil and gas operations (e.g., using electric drilling rigs, electrifying offshore platforms) is growing, driven by a desire to reduce emissions and improve energy efficiency.
Digital Transformation and Technological Advancement:
AI and Machine Learning: Significant investment is being channeled into Artificial Intelligence (AI) and Machine Learning (ML) for optimizing operations, predictive maintenance, enhanced seismic interpretation, well planning, and production efficiency. The global AI in oil and gas market is projected for substantial growth.
Industrial Internet of Things (IIoT) and Cloud Computing: Real-time data analytics, remote monitoring, and improved asset productivity are being driven by IIoT and cloud-based platforms. Cloud computing in the oil and gas market is experiencing robust growth.
Advanced Drilling and Imaging Technologies: Investments continue in technologies that improve extraction efficiency, precision, and safety, such as automated drilling rigs and advanced robotics.
Focus on ESG and Sustainability:
Investor Pressure: Financial institutions and investors are increasingly scrutinizing oil and gas companies’ environmental, social, and governance (ESG) performance. This pressure drives companies to reduce emissions, improve environmental stewardship, and report transparently on their sustainability efforts.
Green Financing: ESG-linked debt covenants and a growing base of environmentally conscious investors are influencing capital allocation, favoring companies with strong decarbonization strategies.
Circular Economy: Investment is also being directed towards circular economy initiatives, such as chemical recycling of plastic waste into new feedstocks for refineries.
Investment Trends by Sector
Upstream (Exploration & Production):
Dominant Share: Upstream activities still command the largest share of oil and gas capital expenditure (around 73% in 2024), reflecting the continuous need to replenish reserves and maintain production.
Onshore vs. Offshore: Onshore operations currently account for the majority of CAPEX due to lower development costs. However, offshore spending, particularly in deepwater discoveries, is growing rapidly due to technological advances reducing breakeven costs.
Production Optimization: There’s an increasing emphasis on maximizing output from discovered resources (development and production) over speculative exploration programs.
Regional Shifts: NOCs in the Middle East and Asia are leading much of the upstream spending rebound, while North American upstream spending may remain muted due to lower oil prices and a continued emphasis on cash flow generation.
Midstream (Transportation & Storage):
LNG Infrastructure: As mentioned, this is a major area of investment, including new liquefaction plants, regasification terminals, and associated pipelines.
Gas Pipelines: Investment in natural gas pipelines remains crucial to connect production basins to consumption centers and export terminals.
Decarbonization of Assets: Efforts to reduce methane emissions from existing midstream infrastructure are also attracting investment.
Downstream (Refining & Petrochemicals):
Refining Constraint: Global refinery investment is projected to fall to its lowest level in a decade (around $30 billion in 2025). This is due to margin pressures, uncertain long-term fuel demand projections, and ongoing rationalization of older, less efficient capacity.
Petrochemical Shift: Investment within downstream is heavily skewed towards petrochemical integration, as refineries seek to maximize the production of higher-value chemical feedstocks to offset declining fuel demand.
The Challenges:
Price Volatility and Economic Uncertainty: Fluctuations in crude oil prices, driven by geopolitical events, economic growth forecasts, and OPEC+ decisions, create an uncertain investment climate. The IEA recently noted that lower crude prices in early 2025 have prompted oil executives to re-evaluate upstream priorities, leading to a projected 6% decline in global oil investments in 2025.
Regulatory Pressures: Increasingly stringent environmental regulations and carbon pricing mechanisms are raising operating costs and influencing investment decisions, pushing companies towards cleaner technologies.
Access to Capital: While ESG considerations haven’t been a major obstacle to all oil and gas investments, they do influence the cost of capital and direct investment towards more sustainable projects.
Skill Shift: The industry needs to invest in upskilling and reskilling its workforce to meet the demands of a more technology-driven and sustainable future.
Conclusion
The oil and gas industry are currently experiencing a dynamic investment landscape, with a renewed focus on both traditional energy sources and the energy transition towards renewables. Key trends include increased spending on exploration and production, a shift towards natural gas, investments in renewable energy projects, and a growing emphasis on digitalization and sustainability.
READ: The Energy Transition and the Oil & Gas Industry